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Standard and Poor's downgrades French credit rating

Standard and Poor's ratings agency downgraded France's AAA rating by one notch to AA+, French Finance Minister François Baroin confirmed on Friday. Austria also lost its top credit rating while Italy was downgraded two notches to BBB+.

AFP - France's finance minister confirmed on Friday that the ratings agency Standard and Poor's had warned the government of its intention to strip the country of its triple-A credit rating.

Speaking on public television, Francois Baroin said the firm would bring its rating down one notch to AA+, but insisted that it was the government and not private agencies or the markets that would decide on economic policy.

"It's not good news, but it's not a catastrophe," Baroin told the France 2 network after crisis talks with President Nicolas Sarkozy, adding: "It's not ratings agencies that decide French policy."

European markets had expected the downgrade, which was widely reported during the day even if S&P was not expected to confirm it until later in the evening, and stocks only slid back slightly.

But the single currency itself was rocked by the news, which coincided with a breakdown in talks to agree a Greek debt writedown, and the euro slipped to 16-month lows against the dollar.

Some observers have suggested that France would have to further rein in public spending, following two previous packages of austerity measures, in order to avoid soaring interest rates in the wake of the downgrade.

This in turn would be a serious setback for Sarkozy's hopes of re-election, less than 100 days before the first round in a tight presidential vote.

But Baroin insisted Paris would not be buffeted into action by the markets, blaming the crisis on failings in world financial architecture revealed by the 2008 credit crunch caused by the failures in US and British banks.

There will be "no new austerity plan because this is not a matter of budgetary discipline," Baroin said.